A federal judge Monday dismissed Kasowitz Benson Torres' False Claims Act lawsuit against several major chemical manufacturing companies, ruling the firm's legal theory didn't hold up.

Kasowitz brought the lawsuit against BASF Corp., the Dow Chemical Co., Huntsman International and Covestro last year, after obtaining information about the companies during discovery in other litigation concerning product liability. The firm, acting on behalf of the federal government, alleged the companies failed to report risk information about certain chemicals to the Environmental Protection Agency as required by the Toxic Substances Control Act.

The law firm's so-called “reverse” FCA claim argued the companies cheated the U.S. out of money by not paying fines for their alleged violations, and that they owed the government $90 billion. As the relator of the claim, Kasowitz stood to gain 30 percent of the recovery, or roughly $27 billion.

But in granting the companies' motion to dismiss the case, U.S. District Judge Rosemary Collyer wrote that, because the EPA had yet assessed or levied any fines, the companies did not have an “obligation” to pay the government.

“An unassessed, contingent penalty is not an FCA 'obligation' subject to suit under the reverse false claims provision,” Collyer wrote in the opinion. “TSCA creates a duty to obey the law, but the duty to pay penalties is not established until penalties are assessed and final.”

The firm was represented by partners Daniel Benson, Andrew Davenport and Ann St. Peter-Griffith. Sotiris Planzos of the Potomac Law Group also represented the plaintiffs.

In an emailed statement, a Kasowitz spokeswoman said the firm disagrees with the judge and will appeal the decision.

She said Collyer's ruling “would enable the chemical company defendants here to evade paying billions of dollars in statutory TSCA penalties for their concerted and continuing refusal over many years to disclose the serious health and safety dangers their isocyanate chemicals pose to coal miners, other industrial users, and consumers.”

Dow Chemical was represented by a team from several firms, which included Kirkland and Ellis partner Christopher Landau and Latham & Watkins partner Alice Fisher. Venable's Seth Rosenthal represented BASF and a team from Reed Smith represented Huntsman International. Covestro was represented by a team from Bradley Arant Boult Cummings.

Kasowitz' theory centered on a 2009 amendment to the FCA, via the Fraud Enforcement and Recovery Act, which defined what an “obligation” to pay the government is under the FCA. Kasowitz argued that new definition encompassed duties contingent on future government action.

The companies, however, said Congress did not mean for the provision in FERA to allow individuals to sue companies over fines the government never issued. The Justice Department declined to intervene in the case, but did file a statement of interest backing the defendants' arguments.

In her opinion, Collyer wrote that Congress' intent with the amendment was clear. For example, she noted that, during the discussions on the amendment, then-Senator John Kyl, now of counsel at Covington & Burling, said that “obviously” lawmakers did not want “the Government or anyone else suing under the False Claims Act to treble and enforce a fine before the duty to pay that fine has been formally established.”

Collyer also cited a remarkably similar case in the Fifth Circuit last year, in which a whistleblower claimed his former employer failed to report information to the EPA under the TSCA and was therefore liable for the penalties. But the Fifth Circuit also held that unassessed regulatory penalties are not “obligations” under the FCA.

“In light of the above legislative history and case law, the Court agrees with Defendants that an 'obligation' under [the amendment] refers to an established duty to pay that exists at the time of the fraudulent conduct, the amount of which may or may not be specifically known at that time,” Collyer wrote.

A federal judge Monday dismissed Kasowitz Benson Torres' False Claims Act lawsuit against several major chemical manufacturing companies, ruling the firm's legal theory didn't hold up.

Kasowitz brought the lawsuit against BASF Corp., the Dow Chemical Co., Huntsman International and Covestro last year, after obtaining information about the companies during discovery in other litigation concerning product liability. The firm, acting on behalf of the federal government, alleged the companies failed to report risk information about certain chemicals to the Environmental Protection Agency as required by the Toxic Substances Control Act.

The law firm's so-called “reverse” FCA claim argued the companies cheated the U.S. out of money by not paying fines for their alleged violations, and that they owed the government $90 billion. As the relator of the claim, Kasowitz stood to gain 30 percent of the recovery, or roughly $27 billion.

But in granting the companies' motion to dismiss the case, U.S. District Judge Rosemary Collyer wrote that, because the EPA had yet assessed or levied any fines, the companies did not have an “obligation” to pay the government.

“An unassessed, contingent penalty is not an FCA 'obligation' subject to suit under the reverse false claims provision,” Collyer wrote in the opinion. “TSCA creates a duty to obey the law, but the duty to pay penalties is not established until penalties are assessed and final.”

The firm was represented by partners Daniel Benson, Andrew Davenport and Ann St. Peter-Griffith. Sotiris Planzos of the Potomac Law Group also represented the plaintiffs.

In an emailed statement, a Kasowitz spokeswoman said the firm disagrees with the judge and will appeal the decision.

She said Collyer's ruling “would enable the chemical company defendants here to evade paying billions of dollars in statutory TSCA penalties for their concerted and continuing refusal over many years to disclose the serious health and safety dangers their isocyanate chemicals pose to coal miners, other industrial users, and consumers.”

Dow Chemical was represented by a team from several firms, which included Kirkland and Ellis partner Christopher Landau and Latham & Watkins partner Alice Fisher. Venable's Seth Rosenthal represented BASF and a team from Reed Smith represented Huntsman International. Covestro was represented by a team from Bradley Arant Boult Cummings.

Kasowitz' theory centered on a 2009 amendment to the FCA, via the Fraud Enforcement and Recovery Act, which defined what an “obligation” to pay the government is under the FCA. Kasowitz argued that new definition encompassed duties contingent on future government action.

The companies, however, said Congress did not mean for the provision in FERA to allow individuals to sue companies over fines the government never issued. The Justice Department declined to intervene in the case, but did file a statement of interest backing the defendants' arguments.

In her opinion, Collyer wrote that Congress' intent with the amendment was clear. For example, she noted that, during the discussions on the amendment, then-Senator John Kyl, now of counsel at Covington & Burling, said that “obviously” lawmakers did not want “the Government or anyone else suing under the False Claims Act to treble and enforce a fine before the duty to pay that fine has been formally established.”

Collyer also cited a remarkably similar case in the Fifth Circuit last year, in which a whistleblower claimed his former employer failed to report information to the EPA under the TSCA and was therefore liable for the penalties. But the Fifth Circuit also held that unassessed regulatory penalties are not “obligations” under the FCA.

“In light of the above legislative history and case law, the Court agrees with Defendants that an 'obligation' under [the amendment] refers to an established duty to pay that exists at the time of the fraudulent conduct, the amount of which may or may not be specifically known at that time,” Collyer wrote.